By employing Lean and Six Sigma techniques, Dr Pepper was able to embark on a journey that prioritized Rapid Continuous Improvement, a strategy that led to a number of savings for the organization that totaled over 100 million dollars.
Dr Pepper Had a Problem
Dr Pepper’s history traces all the way back to 1885 and the town of Waco, Texas. There, a pharmacist named Charles Alderton was working at Morrison’s Old Corner Drug Store. The young pharmacist spent most of his time at the store mixing up medicine but enjoyed serving carbonated drinks at the shop’s soda fountain as well. Finding all of the various flavored syrups mixing in the air to be a pleasant aroma, Alderton experimented with mixing the various syrups, documenting his progress in a journal. Eventually, he came upon a mixture of syrups that he liked, and the unique flavor of Dr Pepper was born.
Patrons of the shop liked the beverage so much that other soda fountain operators began using the syrup. Eventually, Alderton could not keep up with demand, and in 1891, the firm that would ultimately become the Dr. Pepper Company (the period in the name was eventually discarded by the 1950s) was born.
The Dr Pepper Company became known worldwide thanks to the 1904 World’s Fair. Here, the beverage was introduced to 20 million people, which helped it become one of the most popular beverages in the country. Over the years, Dr Pepper has been able to differentiate itself from cola drinks like Coca-Cola and Pepsi by showcasing its secret blend of 23 different flavors.
Despite its differences from the big cola companies, Dr Pepper consistently found itself trailing behind Coca-Cola and Pepsi. Worldwide growth has traditionally been a major factor in Coke and Pepsi’s dominance, with over 50% of their sales attributable to international markets. In contrast, overseas sales account for only 12% of Dr Pepper’s sales.
An opportunity presented itself a few years into the 2000s. The worldwide carbonated soft drink market began to shrink year after year, putting a dent in international sales for the cola leaders. Further dents in the bottom line of both companies occurred as various worldwide currencies began to depreciate significantly against the dollar. Suddenly, Dr Pepper’s reliance on the domestic market began to be seen as an advantage, as it kept the organization immune from international currency fluctuations.
Dr Pepper saw that it was time to make its move. It was going to do what it had always done by continuing to cater to the U.S. market. The only difference would be that the company was going to find ways to do what it did better than before.
Dr Pepper Embarked on a Journey of Rapid Continuous Improvement
In 2006, Dr Pepper sent five of their staff to receive Lean Six Sigma Black Belt training. This training opened up the organization to a new world of understanding about how to address its issues. They were introduced to a problem-solving approach that was unlike anything they had known. Lean Six Sigma gave them the tools for identifying the root causes of issues as well as providing direction in assessing how to remove these causes of defects and errors. The combination of waste reduction techniques, project management tools, and statistical analysis gave the organization confidence that it could be an even better company than it had been.
Over the next six years, 25 Dr Pepper employees completed Black Belt training. Each one was assigned an LSS project that would follow a sequence of steps with a defined financial target. This proved to work out so well for Dr Pepper that the organization began doing internal Black Belt and Green Belt training for its employees. In time, over 200 Lean and Six Sigma projects were completed by the organization.
For the first few years, the projects were focused solely on operations. When Marty Ellen was brought on as CFO, the Lean Six Sigma approach became holistic for the company. The organization moved beyond just applying the concepts to manufacturing and into all areas of the organization. The team applied the techniques to a variety of non-manufacturing processes, including sales, back office, and distribution. The team worked towards removing waste in all areas of Dr Pepper, eventually bringing the concepts to new processes and product designs.
This entailed utilizing a technique known as Design for Six Sigma. Traditionally, in Six Sigma, it is most common to use the DMAIC method. This method is a cornerstone of Six Sigma and involves five phases that are broken down into Define, Measure, Analyze, Improve, and Control. The methodology is used in situations where there is an existing process or product that is not meeting expectations. In contrast, DFSS is a method for designing a service or product from the onset. By using this method, the expected process Sigma level is at least 4.5, which means that there is no more than 1 defect for every thousand opportunities. Having such a low defect level requires the needs and expectations of customers to be fully understood in advance of the completion and implementation of a design.
One iteration of DFSS has a lot in common with DMAIC. It is known as DMADV and its phases are Define, Measure, Analyze, Design, and Verify. While it appears similar to DMAIC, there are some key differences built in. The first phase of this technique focuses on defining what the goals and customer requirements are, as opposed to defining a problem. The measurement phase here involves determining customer expectations and needs. Analyzing means weighing the process options in order to find the best solution for meeting the needs of the customer. The design phase is where the process is detailed for meeting the customer’s needs. Finally, the verification phase involves confirming that the performance of the design meets all requirements.
Along with DFSS, Dr Pepper worked with a policy of Rapid Continuous Improvement. This meant bringing a team together, launching an event to address the problem, and making the necessary improvements over the course of 3-5 days. Dr Pepper ran hundreds of these projects in all areas of the company.
The Outcome Was Stunning
By making Lean and Six Sigma techniques a key part of how Dr Pepper conducted every aspect of its business, the organization was able to show a massive $104 million dollar impact. The organization had an inventory reduction of 41%, a 99.9% fill rate, and a 13% reduction in complaints from customers. It was also able to reduce costs associated with transportation and warehousing by $30 million, along with $9 million in back office costs. All of this has led Dr Pepper to consistently increase its volume share while the major cola brands have continued a steady decline.
3 Best Practices When Implementing the Same Lean and Six Sigma Techniques As Dr Pepper
The team at Dr Pepper learned some major lessons in its integration of Lean and Six Sigma into the way the company did business. Here are some tips for doing the same in your organization:
1. Train as much of your staff as possible for the best results
After seeing initial successes in having some of the team members trained in Lean and Six Sigma, Dr Pepper eventually chose to train a large number of its staff, even going so far as to offer the training in-house. To get the most out of Lean and Six Sigma, it is vital to have your staff onboard, properly trained, and with a full understanding of the benefits that Lean and Six Sigma can bring to the organization.
2. Build upon project success
Once you have had success with a single project, don’t stop there. Build upon the success of that project by finding other areas where your organization can improve. Ultimately, Dr Pepper was able to succeed in 200 Lean and Six Sigma projects, completely transforming how the business was run and leading to its being able to achieve volume growth while its competitors lost market share.
3. Do not be limited in how you apply Lean and Six Sigma techniques
Initially, Dr Pepper stuck to its operations in how the organization applied Lean and Six Sigma techniques. Eventually, the team realized how versatile and adaptable these tools were and was able to incorporate them into every department of the organization. Do not be limited by the general consensus that Six Sigma is for manufacturing and Lean is for product development. If you open your mind to how much these methodologies can benefit every aspect of how your organization does its business, you will find innumerable areas where these tools can help your business improve.
The Future of Dr Pepper
Making Lean and Six Sigma a key part of how it does business proved to be phenomenally successful for Dr Pepper. Instead of trying to match what Coke and Pepsi were doing in international business, the organization was able to double down on the domestic market where it thrived, find ways to serve those customers better, and eliminate waste. This outlook has continued to serve the organization well, and its focus on continuous improvement has continued the company’s rise in domestic sales. All things considered, the future looks bright for Dr Pepper.